Investment Column: Aberdeen worth holding even after take-off

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The Independent Online


Our view: Hold

Share price:161P (+1.2p)

Yesterday saw another encouraging trading update for Aberdeen Asset Management, whose shares have taken off since we advised a buy at 126.7p in March. Funds under management are up to £168.8bn at the end of August, from £164.5bn at the end of June, and that's not just due to markets rising. The company is putting on net new business at a very decent clip and this is feeding through to the bottom line, with margins on the rise.

The company is benefiting from a slowdown in redemptions from clients, who are feeling more confident about equities and have been buying more product from fund managers like Aberdeen in this area. There has also been a gradual improvement in the performance of the company's fixed income business.

So everything is rosy in Aberdeen's garden right? Barring an unforeseen lurch in the markets frightening everyone into pulling their money out, it looks that way. Aberdeen has not been without its problems in years past, but they are long gone now and the business has been functioning rather effectively for some time now.

It is also worth noting that, unlike peers such as Gartmore or Jupiter, Aberdeen is debt free, which should provide investors with confidence.

Despite these factors, however, Evolution Securities notes that the company trades at a modest discount to the sector on 13 times this year's forecast earnings (sector 13.2) and 11.7 times next year's (11.9 times for the sector). That's before possible earnings upgrades encouraged by yesterday's upbeat trading statement.

That said, we've had a very good run for our money and feel that the stock is likely to pause for breath, not least as a result of Aberdeen's admission that the short-term economic and market outlooks are uncertain, to say the least. We wouldn't blame anyone from taking profits after buying in at 126.7p because of that. But we still think Aberdeen is a solid hold.


Our view: buy

Share price: 120p (Unchanged)

Surely you have read The Girl with the Dragon Tattoo by now. Or at least seen the movie. Unless you have been manning a Nasa probe over the past three years, it is hard to have missed hearing something of Lisbeth Salander and her adventures in the Millennium trilogy, written by Swedish journalist Stieg Larsson who died in 2004.

You may not, however, have heard of the publisher which popularised the novels outside of Scandinavia. Quercus was set up by Mark Smith and Wayne Davies in 2004, but the company failed to make a splash, despite the odd hit, until it signed Larsson's work in 2007. Yesterday's interims showed what a good decision that was: they were in line with the August update that revealed profits had nearly tripled to £15m in the first half.

The Millennium trilogy continues to go great guns – and has a 30 per cent bump in sales every time a movie adaptation comes out – while non-Larsson revenues outperformed the UK publishing market. This month the group also announced a deal to push further into North America by signing a joint venture with Sterling Publishing, a subsidiary of Barnes & Noble.

The company is on the up and is keen not to be left in a similar position to Bloomsbury, which faces the vacuum created by the end of the Harry Potter series. Trading on a forecast of 4.3 times full-year 2010 earnings, according to St Helens Capital Partners, this looks very cheap. Buy

Personal Group

Our view: Hold

Share price: 258p (+3p)

Personal Group specialises in employee benefits, focusing mostly on blue- collar workers and its core products are voluntary ones, meaning that employees must opt in. So you can immediately see the problem. Given all the talk of economic woe, there's a big risk that workers think twice about using what is admittedly a small part of their payroll to subscribe to Personal Group's offerings. It's true that these benefits may seem more attractive as the Government rolls back free public services, but given the ever worsening headlines, we worry that most people will be inclined to cut back.

Yesterday's interims, however, were upbeat. Pre-tax profits over the six months to the end of June were up 15 per cent, figures which become all the more alluring when you consider that profits tend to be weighted towards the second half. In terms of valuation, the stock trades on multiples of under 12 times this year's forward earnings, and on under 11 times next year's. The yield goes from a tasty 6.9 per cent for 2010 to 7.1 per cent for next year. Can the company keep up the pace given the economic outlook? It's worth holding to find out.